Top 7 Types Of Investments For 2022: Explained

Key Takeaways

• 2022 is set up to be an interesting year. Inflation is running rampant, interest rates are set to rise and the stock market is still topsy-turvy. 
• One of the best ways to navigate this financial maelstrom is through a risk-adjusted strategy of saving and investing. 
• Some of the best types of investments for 2022 include high-yield savings accounts, government I-bonds and well-diversified ETFs. 
• Investors who can afford more risk may also look into alternative investments like commodities and cryptocurrencies to boost their returns. 

Investing in the stock market is one of the best ways to grow your wealth. Typically, experts recommend a well-diversified investment portfolio that bundles safe and risky securities together. In the long run, such a portfolio can generate growth and better hedge against market and economic volatility. 

But already, 2022 has proven that it’s not a typical year. Inflation is on the rise. Bond yields are going up while CD rates remain abysmally low. And the Federal Reserve is debating up to three interest rate hikes this year to curb the runaway economy. All that to say: Knowing where to park your money right now isn’t easy. 

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That’s why we’ve rounded up the best type of investments for 2022 to help you protect your financial future. 

High-yield savings accounts

High-yield savings accounts keep your money liquid while generating a little return. Although they rarely keep pace with inflation, this is one of the best places to park cash you need to access quickly, such as your emergency fund. Plus, they’re as close to no-risk as you can get, as reputable accounts are FDIC-insured up to $250,000.  

Unfortunately, no high-yield savings account pays anywhere near the seven percent inflation we’ve seen in the past year. Most boast around 0.6% returns, compared to the national average of 0.06%. That said, with the Fed looking at hiking interest rates, many savings accounts may see their returns go up, too. There’s one caveat when it comes to variable-rate accounts, however. These offer a rate at opening that is subject to change.

Certificates of Deposit (CDs) 

If you don’t need to access your savings in a hurry and want to capture a little more growth, a CD may do the trick. These accounts are issued by banks at a higher fixed interest rate than most savings accounts. (Right now, the best CDs are paying around 1.25%). They also enjoy FDIC insurance protection, making them ideal for risk-averse investors who want to minimize the eroding power of inflation. 

Generally, CDs are considered short-term to medium-term investments. Once you put your money in, you can’t access it – without penalty – until the maturity date, which ranges from six months to five years. As such, you shouldn’t invest any funds you’ll need in the foreseeable future. 

But you can also “ladder” your CDs, or open multiple CDs across several months or years. This method lets you capture changing interest rates and access your funds regularly as your accounts mature. Then, you can pull out cash or roll your account into a new CD as needed. 

I-Bonds

I-bonds are a type of government debt issued by the U.S. Treasury. Unlike traditional savings bonds, I-bonds adjust their interest rate every six months to keep pace with inflation, making them hands-down one of the best types of investments in 2022’s inflationary environment. 

That said, I-bonds do come with limitations. To start, you have to hold them for at least five years to keep all the interest you earn. And you can only purchase $10,000 worth per year, though you can put an additional $5,000 of your tax refund into I-bonds. 

Index funds

Index funds are investments that track various indexes in general composition and returns. For instance, you can buy an index fund that tracks the S&P 500 or the Nasdaq-100. Some index funds specialize in specific sectors or industries, allowing you to add exposure to areas of interest.

Index funds come with perks like high diversity, low expense ratios (fees), and ease of access for individual investors. You can buy funds that trade as either ETFs or mutual funds. (Typically, ETFs trade like stocks and have lower costs and investment minimums, while mutual funds only trade once per day at closing.) 

Most brokerage and retirement accounts allow you to invest in index funds with just a few bucks. Though they come with more volatility than savings accounts and government I-bonds, they’re often considered one of the safer ways to invest in the stock market and beat inflation. 

Other Exchange-Traded Funds (ETFs)

Exchange-traded funds are similar to index funds in that they invest in a large basket of securities. Then, they package their investments into individual shares that trade on an exchange just like a regular stock. Many ETFs buy into a particular index, sector, or commodity, allowing investors to specialize a portion of their portfolio. 

ETFs share several perks with index funds, including their low costs and easy portfolio diversification. Plus, many ETFs come with greater tax efficiency than handpicking individual securities. And most retirement and brokerage accounts permit ETF trading, making them readily accessible to investors of all stripes. 

Dividend stocks

Dividends are small cash sums paid to shareholders out of a company’s profits to reward them for owning stock. These payouts make them one of the best types of investments for 2022 for boosting gains and minimizing the effects of inflation. 

As an investor, dividend stocks let you earn a little cash in the short-term while also benefiting from long-term rises in share price. You can also reinvest your dividends right back into your portfolio.  

But dividend stocks aren’t without their own risks. While they’re often considered safer than growth or non-dividend-paying stocks, not every company that pays a dividend is a worthwhile investment. (Some even pay unsustainable dividends to encourage investors to buy in.) 

As such, you may want to shop around for dividend stocks that have a history of regularly paying and increasing their dividends. You can also buy into well-diversified, dividend-focused ETFs and mutual funds.

Alternative investments and cryptocurrencies 

In investing, there’s often an inverse correlation between risk and reward. The riskier the investment, the more you may stand to make. Often, that risk isn’t negligible – you may stand to lose your whole investment off one hiccup in the market. 

But if you want to make money in a volatile economy, alternative investments like commodities and cryptocurrencies can prove lucrative. However, you may still want to minimize total exposure to these two categories to avoid taking on too much risk.

Investing in commodities

Commodities are a broad category of investments that include:

• Agricultural products like beef and grains
• Precious metals
• Oil and natural gas
• Raw materials like lumber and iron

The price of a commodity is usually dependent on supply and demand factors. As a result, they’re typically more profitable during a supply chain crunch, such as we’ve seen this year. But they’re still risky – a slight change in geopolitical situations, natural disasters, and droughts can all drastically impact your profits. As such, investors may prefer investing in commodity-focused ETFs and mutual funds over commodities contracts. 

Investing in cryptocurrency

Another alternative investment that has proven profitable for some investors is cryptocurrency, particularly Bitcoin. Over the past few years, more investors have flooded this new space, sending prices soaring and drawing more speculation and investment. 

As a result, some coins reached new all-time highs and made millionaires out of a lucky few. But these leaps don’t last long in cryptocurrency, as seen by Bitcoin’s $50,000 rise followed by its dramatic plummet in 2021. And few coins have seen anything like the success of Bitcoin or, to a lesser extent, Ethereum. 

Unlike other assets, crypto isn’t backed by FDIC insurance or the intrinsic value of an underlying company. Ultimately, these assets are only worth what a trader will pay for it. Not to mention, investors run the risk of being hacked or selecting the wrong coins that fade into oblivion. 

If you want to invest in cryptocurrency, it’s essential to do your homework and only invest what you can afford to lose. And while you can buy cryptos on an exchange, the better bet may be to invest in a diversified crypto ETF. 

Make 2022 the year to invest in you

Modern investors aren’t limited to just steak-and-potato stocks and bonds. If you’re looking at the best type of investments for 2022, you may find you’re better served by a well-diversified portfolio that dabbles in a little more risk (or a little less). 

But before you invest, you should consider significant factors in your life, such as your:

• Risk tolerance
• Time horizon
• Knowledge and comfortability with investing
• Your financial situation
• And your goals and purpose 

You’ll also want to consider the potential risks, rewards, and financial impact of each type of investment. Then, you can make an informed decision about which ones make the most sense for you. 

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